Welcome back to What I’m Hearing+, live from San Francisco, where I’ve fully joined the “Pacific time is the best time” NFL-watching club. It’s lovely to tune into Sunday Night Football and not fall asleep in the third quarter.

Speaking of football, in tonight’s issue, a look at Sunday Ticket on YouTube TV, which is widely seen as a harbinger of the future of big sports rights packages as the leagues become streaming-curious. Let’s dive in…

Meanwhile, all eyes are on YouTube, which won the NFL’s Sunday Ticket last year for an astounding $14 billion over seven years. So far, the numbers look promising, though the deal is surely losing Alphabet, its parent, tons of money at the outset. About 1.3 million customers had signed up for Sunday Ticket on YouTube as of Oct. 1, according to research firm Antenna—already comparable to the roughly 1.5 million who were subscribed through DirecTV, the previous rights holder (although the old Sunday Ticket was only available through a full package offering, whereas YouTube is able to offer it a la carte). DirecTV has said it was losing “a billion dollars a year” on that deal, but NFL executives are optimistic that the potential audience on YouTube will be much, much larger, even at a cost of $249 to $489 per year per subscriber.

YouTube C.E.O Neil Mohan and C.B.O. Mary Ellen Coe have said subscriber counts are exceeding expectations, but they failed to provide insight into where those customers are coming from—YouTube TV, the cable and satellite competitor, or YouTube Primetime Channels, the company’s subscription store (similar to Amazon Prime Video Channels)—or how well those customers are being monetized. On the subscription front, 1.3 million customers paying an estimated average of $425 a year is about $552 million gross. Advertising—with a CPM of around $75 in the key demo during 2020, according to Standard Media Index—adds another couple hundred million dollars. Targeted ads may help bring in additional advertisers who weren’t allocating budget when it was available through DirecTV, too.

Of course, there are many, many costs, operating expenses, and additional discounts that Google offered in the lead-up to the season, potentially making the overall revenue per customer less than if it was solely available through YouTube TV, and there were still 1.3 million signups. One report from nScreenMedia suggests that it would take about 3 million Sunday Ticket subscribers who watch a few full games each week to clear the $2 billion per year cost. Either way, Alphabet’s plan with Sunday Ticket seems directionally correct, and a harbinger of its larger ambitions in streaming.

Naturally, analysts have high hopes for the synergy of Alphabet and the NFL—the world’s third largest company and the country’s most important sports league. I’ve suggested before that YouTube TV, with its old-school-with-a-twist interface and browsing experience, is the platform best positioned to fully replace cable television. Indeed, while overall sports viewership declined on linear TV last year, it increased on streaming platforms and vMVPDs (Virtual Multi-Channel Video Programing Distributors, or basically cable on streaming), according to MoffettNathanson. And YouTube TV is by far the fastest-growing vMVPD in the U.S., adding an estimated 300,000 customers in Q2 during the same period that Hulu + Live TV and FuboTV lost customers.

Of course, the strategy for leveraging NFL Sunday Ticket to supercharge YouTube TV is still evolving. And, as always, it’s complicated. At the moment, you can buy Sunday Ticket through YouTube Channels, as a standalone product, or you can purchase it as an add-on to YouTube TV. Alas, we don’t know how many people are signing up through which service. It’s also unclear whether these customers are cord cutters or cord nevers. These are crucial questions for Wall Street and for the media industry as YouTube aspires to beat Dish to become the fourth largest vMVPD. A robust sports package, and particularly the NFL, is the catalyst.

The regional sports networks are a mess, and the leagues reliant on those partnerships are trying to figure out a path forward. The RSNs won’t willingly remove themselves from the Pay TV bundle where affiliate revenue, while declining, is still stronger than anything they may get from a standalone subscription. But eventually, offering more local content as part of an add-on streaming product through Channels or YouTube TV makes sense for Google: hyper local, targeted advertising.

YouTube is looking to sell out its advertising inventory through YouTube TV. There are national advertisers who want to be on the biggest sports, but also plenty of others who want to attach to high value local audiences via the sort of data collection that only Google (or maybe Amazon, too, to some extent) can offer. YouTube’s ad-tech, long seen as one of the most advanced technologies globally, also provides a strong opportunity for advertisers looking to engage with more targeted viewers that YouTube can discern while still being attached to high impact content like sports.

Consider that both Amazon and Google also have advanced retail options (Amazon via Prime, YouTube via Shelf) that can make purchasing directly from advertisers shown via local games much more intuitive. Local advertising is expected to hover around $23 billion in 2024, according to Insider Intelligence, with digital local advertising nearly catching up to traditional local ad spending in 2023. Local content, and particularly local sports, will be a key part of this equation.

The value proposition is slightly more complicated for YouTube TV, which already offers the biggest NFL games without Sunday Ticket via ESPN, CBS, NBC, and Fox, all of which are included in its basic $73-a-month package. So what does YouTube get for owning the rights to sell Sunday Ticket that it didn’t already have? Is owning that deeper product relationship with fans worth spending an extra $2 billion a year on additional rights?

Part of the answer is that YouTube’s television strategy is bigger than YouTube TV. The company wants a much larger share of the connected TV (CTV) audience, as well as working to ensure that the YouTube app is pre-installed for customers on Smart TVs. And that laser focus is paying off: By the end of 2022, close to half of all YouTube viewing was on TV screens, according to the company. Indeed, between YouTube TV and YouTube Channels (which allows subscribers to add premium channels like Showtime, Starz, AMC+, etcetera), combined with the billion or so videos on YouTube (and its 2.7 billion active users), there’s no other company that approaches its stranglehold on attention.

The longer-term goal is to transform YouTube into a default mega-platform hub for video across devices: desktop, mobile, and especially smart TVs, where Android is the second largest streaming OS globally and the fourth largest (and fastest growing) in the U.S. Eventually, Sunday Ticket could become one part of a package that could include Max, Disney+, Peacock, Paramount+, etcetera (including, one day, maybe even Netflix and Prime Video). The end goal is to train consumers to think of YouTube as not just a platform or a provider, but a true utility.

Sunday Ticket and YouTube haven’t exactly proven anything yet beyond the fact that audiences want football, and they’ll sign up wherever to get it—a truth we’ve largely assumed for years. But the potential of YouTube’s ecosystem, expanding beyond a national league into becoming a key sports distributor, is alluring—even if it’s too soon to declare the package as a win or a loss. Let’s set a date to check back in sometime after the Super Bowl.